Limit Orders – Submitting Limit Orders

by Stilgar

Use of Limit Orders in Equities, Alternative Securities, Crypto, and FX

Past 5 years of my life have been spent building trading platforms, specifically for alternative securities, crypto-currencies, and FX most recently. One of the common themes all of these platforms had was the use of Limit Orders.

What are Limit Orders

Limit Orders are my preferred way of Order Entry as it gives me significant control over the price the order gets filled at. Limit order is an order instruction that can only be executed at the price you specify or better. There are other reasons why you may want to use the limit order. You may not be in front of the computer/phone activity monitoring the price movement and as such may not be quickly be able to respond to changes in market movements. If you have a Limit Order specified, you are not forced to actively monitor the market or when you are not paying close attention. As such, think of Limit Orders as your agent in the Market Place that is representing you in your absence. 

How to Submit Limit Orders

Most Trading Platforms have a very similar interface on how Limit Orders are placed. Typically, the following conditions are required to successfully place a Limit Order.

  • Limit Order Price
  • Quantity

Example:

Suppose you are interested in speculating on price movements of Tesla (NASDAQ: TSLA), and the current price is at $797. Because of significant market volatility, you believe that there is high probability that Tesla’s stock price movement may fall as low $650. Since, you can’t actively monitor and respond to these price movements rapidly, you decide to play a Limit Order such that you can take advantage of the price dip, and hold or sell at a later time for a nice profit.

Scenario: Tesla’s Stock Price drops below $650 and Your Order of 100 Units Fills

  • GIVEN you placed a Limit Buy Order $650
  • AND a quantity of 100 shares
  • WHEN the price of Tesla falls to $650 or below
  • THEN your order is filled for 100 units at $650 or better

In this scenario, the price of Tesla’s stock drops below $650 and your entire order was able to be filled. 

You can also have a Scenario where the price falls to $650 or below, but only a partial quantity of your order is filled. This can be a result of not enough liquidity to support at that price level i.e. Let’s say there are only 50 Units available for Sale at $650. In that instance, you will end up selling half your position, and the remaining 50 shares now sit on the Limit Order Book waiting to get filed by another selling who is interested to sell you at $650. 

The same principle in reverse applies for placing Limit Orders. Suppose you have 100 shares of Tesla and want to sell it at $900 with the current price at $797. Once you submit the order, your order of selling 100 Shares of Tesla will not get sold unless it is for $900 or higher.

What are Market Orders

I usually avoid placing Market Orders, especially for cryptocurrencies as price movements are too volatile and you end up paying too much when Buying or receiving too little when selling i.e. The price you saw when you submitted the Market Order is not the same price that it is filled at. This is also called slippage. Market Orders are usually better if you care more about having a position in an instrument as soon as possible i.e. you care more about immediacy of your order being filled vs. the price it is being filled at. I usually submit Market Orders in highly liquid markets so that my slippage is quite low.